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Hedge funds in the rainbow nation (Article published in HFM)
The South African hedge fund market is set for explosive growth if a combination of regulations expected next year coincides with a relaxation of exchange controls, writes Bill Lumley. For the full story please register on HFM website

Extracts from the article:

Hedge fund manager viewpoint
Julian Williams discusses the pending South Afircan regulation.

A limited liability partnership (LLP) route allows you to get around the regulation issue (being unable to market the products) – the problem is a lot of investors don’t understand it. It’s a question of the profile of your investors. If they are sophisticated, high-net worth individuals it is fine, but if it is a retail base then it is obviously difficult.

liquidity
One constraint on the hedge fund side is liquidity. The South African market isn’t massive. Depending on the type of strategies being run if it is one that requires a lot of liquidity such as statistical arbitrage, then there are limitations to what can be done in the South African market. But there are opportunities and it’s a competitive business. It’s still a little unclear at the moment, but you can clearly do business with the right partnership structure.

forex
We’ve seen interesting signs from some of the big banks, suggesting they anticipate exchange controls being dropped, with banks gearing down their exposure. Hopefully forex will bring more offshore investors into our local market.

regulation
It’s our perception there are a lot of interested parties who seem to want to move the regulations to serve their own purpose, such as the Association of Unit Trusts. They’re trying to be prescriptive on the actual management of the hedge fund regulations. We are not yet convinced either way as to whether regulation is good or bad and we are not yet convinced the approach they are taking is the right one, being too specific with regards to the hedge fund regulation. I would like to see them copying what is happening in the UK and US where you define this other class of fund and instead of trying to be specific in that area you make it limiting, having to ensure you have a sophisticated investor and so on.

Julian Williams, chief executive of Abante Capital